Cleaning House: Combatting Money Laundering
Martin Cheek, 02 June 2021
Money laundering, for the general public, is the stuff of gritty dramas like Ozark or the notorious dealings of Pablo Escobar and El Chapo. In popular culture, it is depicted as an activity to be done in the dark of night with neatly-stacked wads of cash deposited into duffel bags. The reality, however, is much more banal, with most money laundering occurring in the guise of an unremarkable series of transactions designed to obfuscate the trail for any who might be inclined to investigate.
The real estate sector has long been a favorite of money launderers, as the lack of regulation and use of shell companies have enabled them to “wash” a large quantity of cash through the system in one transaction. The truth is that nobody really knows how much money is laundered through real estate—not least because much of it currently goes undetected. This opacity might serve shady operators well, but it can have catastrophic effects on the rest of the economy, as the 2008 housing crisis demonstrated all too devastatingly.
Why Real Estate Is a Target
Because the United States, until recently, did not require company owners—including those of anonymous shell companies—to reveal their identities, they were able to operate as if legitimate businesses, even if their dealings were anything but. Consequently, criminals and money laundering networks often use shell companies to purchase property without raising suspicion from authorities. Global Witness, an NGO that has conducted multiple investigations into money laundering, noted that “all too often, the proceeds of crime and corruption [are] used to purchase homes” which, once resold, make any capital involved legally acquired.
In 2018, three people in California—Surjit Singh, Rajeshwar Singh, and Anita Sharma—were sentenced to prison and ordered to pay hefty fines and restitution for their participation in a mortgage fraud scheme. The scheme entailed recruiting individuals with good credit to act as “straw buyers”—that is, someone who purchases a property on someone else’s behalf—for properties owned by Surjit Singh’s family members and associates. Because many of those straw buyers lacked the income to be able to afford those properties, Rajeshwar Singh, an accredited real estate agent, submitted falsified loan applications on their behalf to improve their chances of being approved.
